The long-standing slanging match between Neil Hamilton and Harrods owner Mohamed al-Fayed will be played out in court tomorrow when the former Conservative MP's long-awaited libel action is finally heard.

Hamilton hopes to clear his name from the accusation that he accepted the infamous brown envelope of Fayed cash in exchange for asking parliamentary questions. Both men have accused each other of being inveterate liars.

The case, expected to last as long as three weeks, will pitch Edwina Currie, the former Conservative Health Minister, against her former colleague if, as is likely, she is called to give evidence on behalf of Fayed.

The case is already causing anxiety among senior officials at Conservative Central Office, who fear that all the old issues of 'sleaze' that brought down the previous Conservative administration will resurface.

The trial, which begins as the Government tables proposals to clear up party political funding and outlaw the bribery of MPs, is being financed by a £750,000 fighting fund put together by Hamilton's many right-wing sympathisers inside the Conservative Party. Hamilton has not been told the names of his backers.

He has always insisted he never took cash in brown envelopes from Fayed in exchange for tabling questions, despite a Standards and Privileges Committee report to the contrary.

Currie may be called to give evidence about the Government's plans in 1988 to ban the sale of Skoal Bandits, the trade name for small pouches of a moistened chewing tobacco product.

Hamilton lobbied the Department of Health against the ban, but did not declare in the register of Members' Interests that he had received £6,000 from the lobbyist Ian Greer, allegedly to introduce representatives of the manufacturer to ministers.

Former Deputy Prime Minister Michael Heseltine could also be called to give evidence. Hamilton had been asked by Heseltine whether he had taken money from the lobbyist Ian Greer and denied it initially before admitting he made an error due to the fraught nature of the telephone call.

Hamilton has been campaigning to clear his name ever since the Standards and Privileges Committee found against him. He managed to win a change in the law so he could bring his earlier libel action against the Guardian. Until the law was changed MPs were not allowed to take libel actions if they would have required a court to rule on whether the rules of the Commons had been broken. Parliament is seen as the highest court in the land. The libel action against the Guardian collapsed before it reached court. But Guardian reporters are likely to be called on this occasion.

The case will also put Fayed in the witness box on Tuesday, where he will be closely questioned by lawyers acting for Hamilton. Fayed recently had his application for British citzenship turned down by the Home Secretary, Jack Straw. No reason was given.

Fayed appears to be determined to defend his claim that he did give money to Hamilton. Much of the case may turn on what evidence is admissible.

One of Hamilton's colleagues, Tim Smith, the Conservative MP for Beaconsfield, has admitted that he did take £25,000.